Accounting For Governmental & Nonprofit Entities
18th Edition
ISBN: 9781259917059
Author: RECK, Jacqueline L., Lowensohn, Suzanne L., NEELY, Daniel G.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 5, Problem 20EP
1.
To determine
Journalize the entries to record the lease at the inception.
2.
To determine
Identify the financial statements prepared to show the assets and liabilities related to the capital lease.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Kendall County entered into a lease agreement to finance computer equipment used in government offices. The lease covers three years, and county officials are reasonably certain that funding and approvals will be renewed annually. At the inception of the lease, a payment of $640,000 will be made; two additional annual lease payments of $640,000 are to be made near the end of each year. The total amount to be paid under this lease is $1,920,000. The lease arrangements implied an annual interest rate of 3 percent. Therefore, the present value of the lease at inception, including the initial payment, is $1,864,620. Assume that the fair value of the equipment at the inception of the lease is $1,900,000.
What amount would the liability be reported at the end of the first year
On December 31, 2020, the City of Oliver leases a large piece of construction equipment with a 25-year life for five years to use during a construction project. After the contract ends, the city must return the equipment to the lessor but has not guaranteed any residual value. The lease requires five annual payments of $40,000 per year beginning immediately. Oliver uses its own incremental borrowing rate of 10 percent per year because it does not know the implicit interest rate the lessor is charging. The present value of a $40,000 annuity due for five years at an annual interest rate of 10 percent is $166,795 (rounded).
Prepare the journal entry/entries required for government-wide financial statements for this lease contract for 2020 and 2021.
Dr. Superhook, a private towing contractor, has an opportunity for a towing contract with the city over the next 5 years. The contract calls for the city to pay Dr. Superhook $4,000,000 at the start of the contract and nothing for the remainder of the contract. Dr. Superhook estimates that its expenses will be $1,200,000 at the end of each of the 5 years If Dr. Superhook uses IRR to evaluate its opportunities, under what values of the discount rate would the company accept the contract? Briefly explain why.
Chapter 5 Solutions
Accounting For Governmental & Nonprofit Entities
Ch. 5 - What are general capital assets? How are they...Ch. 5 - Explain what disclosures the GASB requires for...Ch. 5 - Prob. 3QCh. 5 - Prob. 4QCh. 5 - Prob. 5QCh. 5 - What is the accounting difference between using...Ch. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - What is a service concession arrangement, and why...
Ch. 5 - Prob. 13CCh. 5 - Prob. 14CCh. 5 - Prob. 15CCh. 5 - Under GASB standards, which of the following would...Ch. 5 - Two new copiers were purchased for use by the city...Ch. 5 - Maxim County just completed construction of a new...Ch. 5 - A capital projects fund would probably not be used...Ch. 5 - Machinery and equipment depreciation expense for...Ch. 5 - Prob. 17.6EPCh. 5 - Prob. 17.7EPCh. 5 - Callaway County issued 10,000,000 in bonds at 101...Ch. 5 - Neighborville enters into a lease agreement for...Ch. 5 - Neighborville enters into a lease agreement for...Ch. 5 - Prob. 17.11EPCh. 5 - Prob. 17.12EPCh. 5 - Prob. 17.13EPCh. 5 - Arbitrage rules under the Internal Revenue Code a....Ch. 5 - Prob. 17.15EPCh. 5 - Make all necessary entries in the appropriate...Ch. 5 - Prob. 19EPCh. 5 - Prob. 20EPCh. 5 - In the current year, the building occupied by...Ch. 5 - Prob. 22EPCh. 5 - Make all necessary entries in a capital projects...Ch. 5 - The year-end pre-closing trial balance for the...Ch. 5 - Prob. 25EPCh. 5 - This year Riverside began work on an outdoor...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?arrow_forwardLand City leases a fleet of garbage trucks. The term of the lease is 10 years, approximately the useful life of the equipment. Based on a sales price of $800,000 and an interest rate of 6%, the city agrees to make annual payments of $108,694. Upon the expiration of the lease, the trucks will revert to the city. 1. Prepare appropriate journal entries in the general fund, the general fixed assets account group, and the general long-term debt account group to record the signing of the lease. 2. Prepare appropriate journal entries in the same fund and account groups to record the first payment on the lease. The city records depreciation on garbage trucks using the straight-line method.arrow_forwardTo raise operating funds, North American Courier Corporation sold its building on January 1, 2021, to an insurance company for $508,000 and immediately leased the building back. The lease is for a 10-year period ending December 31, 2030, at which time ownership of the building will revert to North American Courier. The building has a carrying amount of $470,000 (original cost $1,140,000). The lease requires North American to make payments of $89,908 to the insurance company each December 31. The building had a total original useful life of 30 years with no residual value and is being depreciated on a straight-line basis. The lease has an implicit rate of 12%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:1. Prepare the appropriate entries for North American (a) on January 1, 2021, to record the transaction and (b) on December 31, 2021, to record necessary adjustments.2. Show how North American’s…arrow_forward
- 1. Clavel County leases an office building with a remaining economic life of 20 years. The fair market value of the building is $6 million. Annual lease payments are agreed at $523,107, based on a 6 percent interest rate. The lease meets the conditions for a capital lease.Record the lease and the first year’s interest payment (a) In a governmental fund (b) In the government-wide statements 2. Should the office building be depreciated? If so, how and where should depreciation be recorded? 3. Suppose the lease did not meet the conditions for a capital lease. How and where should the lease be recorded? Should the office building be depreciated? If so, how and where should depreciation be reported?arrow_forwardTo raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2021, for $820,000 and immediately leased the building back. The operating lease is for the final 10 years of the building’s estimated 20-year remaining useful life. The building has a fair value of $820,000 and a book value of $660,000 (its original cost was $1 million). The rental payments of $120,000 are payable to the insurance company each December 31. The lease has an implicit rate of 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. & 2. Prepare the appropriate entries for National Distribution Center on January 1, 2021 and December 31, 2021, to record the sale-leaseback and necessary adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)arrow_forwardTo raise operating funds, North American Courier Corporation sold its building on January 1, 2016, to an insurance company for $500,000 and immediately leased the building back. The lease is for a 10-year period ending December 31, 2025, at which time ownership of the building will revert to North American Courier. The building has a book value of $400,000 (original cost $1,000,000). The lease requires North American to make payments of $88,492 to the insurance company each December 31. The building had a total original useful life of 30 years with no residual value and is being depreciated on a straight-line basis. The lease has an implicit rate of 12%. Required: 1. Prepare the appropriate entries for North American on (a) January 1, 2016, to record the sale-leaseback and (b) December 31, 2016, to record necessary adjustments. 2. Show how North American’s December 31, 2016, balance sheet and income statement would reflect the sale-leaseback.arrow_forward
- At the start of Year 1, the City Peacock leases 30 computers for use by various officials in school administration and public safety at a total cost of $90,000 per year. The first lease payment is made immediately. The contracts are for 5 years, the expected life of the computers. After that period, the city will return them to the lessor. What reporting is appropriate for the city of the first year? Assume the city has an annual incremental borrowing rate of 8%arrow_forwardAt the start of Year 1, the City Peacock leased 30 computers for use by various officials in school administration and public safety at a total cost of $90,000 per year. The first lease payment is made immediately. The contracts are for five years, the expected life of the computers. After that life period, the city will return them to the lessor. What reporting is appropriate for the city for the first year?arrow_forwardOn January 1, 2018 The Village of Port Jefferson engaged to Frog Construction company to construct amunicipal office complex. The three-year a to receive 10 million in cash payments from the city in threeinstallments: 25% when the project was 30% complete; 25% when the project was 60% complete; and50%when the project was fully complete. The contract required that Frog's completion estimates be certifiedby an independent consultant before payments were made.During the first year of the contract, Frog completed 30% of the contract and incurred costs of 2,490,000.During the second year, the project was certified as being 60% complete and Frog incurred costs of3,100,000.During the third year, Frog completed the project and incurred costs of 3,110,000.Assuming Frog had no other revenues or expenses, determine the profit on construction for 2018, 2019,and 2020 under the following methods: A. Percentage Calculation B. Completed Contractarrow_forward
- Sage Industries and Pronghorn Inc. enter into an agreement that requires Pronghorn Inc. to build three diesel-electric engines to Sage’s specifications. Upon completion of the engines, Sage has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $405,443 each January 1, starting January 1, 2020.Sage’s incremental borrowing rate is 8%. The implicit interest rate used by Pronghorn and known to Sage is 7%. The total cost of building the three engines is $2,685,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sage depreciates similar equipment on a straight-line basis. At the end of the lease, Sage assumes title to the engines. Collectibility of the lease payments is probable. (f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31,…arrow_forwardTo raise working capital, ABC Company sold its storage building to Best Bank on January 1, 2021, for $950,000 and immediately leased the building back. The operating lease is for the next 10 years of the building’s estimated 20-year remaining useful life. The building has a fair value of $950,000 and a book value of $660,000 (its original cost was $1,000,000). The annual lease payments of $120,000 are payable to Best Bank each December 31, beginning from December 31, 2021. The lease has an implicit rate of 8%. Let's assume that both ABC Company and Best Bank use the straight-line depreciation method for fixed assets with zero residual value. Information of Time Value (i) present value of an ordinary annuity of $1 (n=10, i=8%) = 6.71008 (ii) present value of an annuity due of $1 (n=10, i=8%) = 7.24689 (iii) present value of $1 (n=10, i=8%) = 0.46319 Required: Prepare the appropriate entries for ABC Company on January 1, 2021 and December 31, 2021, to record the transaction and…arrow_forwardhe City of Raylan has a rather large warehouse that it no longer needs. The city had previously used the warehouse to store supplies and equipment for the school system, police department, and other public service functions. It has a remaining expected life of 18 years with no expected residual value. On January 1, 2020, the warehouse has a net book value of $1.4 million. On that date, city officials agree to lease the property to Acme International for its remaining life. Both parties agree to an implicit interest rate of 12 percent. The first payment is to be made immediately and on each subsequent January 1. The straight-line method is used where an allocation method is required. Assume that the present value of an annuity due of $1 at a 12 percent annual rate for 18 periods is 8.11963. Based on that assumption, what amount does the City of Raylan charge Acme each period? Assume the annual payments are properly calculated as $172,400 based on the information provided. What journal…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning